Analysis of Zara's Global Supply Chain Management - INS3021

This report provides an analysis of Zara's global supply chain management, focusing on its strategic priorities, supply chain design, and key management issues. It begins by examining Zara's order winners and qualifiers, highlighting the company's emphasis on cost and responsiveness through short production times and trendy designs. The report then delves into Zara's supply chain structure, emphasizing the 'Leagile' strategy, which combines lean and agile approaches to ensure low stock, high efficiency, and rapid response to changing customer demands. Key aspects such as vertical integration, outsourcing, and the role of IT are also discussed. Furthermore, the report identifies challenges in forecasting demand and logistics management, offering recommendations to improve these areas. The analysis concludes by summarizing Zara's supply chain strengths and suggesting areas for further optimization.

Global supply chain
management
Group 12
Global Supply Chain Management Analysis of ZARA company
Lecturer: Dr. Trần Công Thành
Group members: Chu Ngọc Linh – 20070221
Phạm Thị Dịu – 19071327
Nguyễn Thu Hoài – 20070931
Nguyễn Thu Huyền – 20070937
HaNoi, December 2022
FINAL EXAMINATION – REPORT
INS3021-03

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Table of Contents
EXECUTIVE SUMMARY .............................................................................................. 3
I. INTRODUCTION ........................................................................................................ 4
II. STRATEGIC PRIORITIES ....................................................................................... 4
1. Order Winners ............................................................................................................ 4
2. Order Qualifiers .......................................................................................................... 6
III. SUPPLY CHAIN DESIGN ....................................................................................... 8
1. Zara supply chain structure ......................................................................................... 8
2. Vertical Integration ....................................................................................................10
3. Outsourcing ...............................................................................................................12
4. IT ..............................................................................................................................13
5. Supply chain strategy .................................................................................................14
5.1. Lean strategy .......................................................................................................14
5.2. Agile strategy ......................................................................................................16
IV. SUPPLY CHAIN MANAGEMENT ISSUES ..........................................................17
1. Forecasting demand ...................................................................................................17
2. Logistics management ...............................................................................................19
V. RECOMMENDATION..............................................................................................21
1. Logistics ....................................................................................................................21
2. Forecasting demand planning ...................................................................................22
VI. CONCLUSION .........................................................................................................23
APPENDIX A: PRESENTATIONSLIDE......................................................................23
APPENDIX B: SELF- EVALUATION FORM .............................................................27
REFERENCES ...............................................................................................................29

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EXECUTIVE SUMMARY
This report's objective is to study on Zara's worldwide supply chain management. It has three
primary components that may be separated. To understand the industry drivers and the
criteria a business needs in order to remain competitive, we first took a look at the Zara order
winners and order qualifiers. Then, we go to discover the Zara supply chain design. Also, we
mentioned supply chain strategy in Zara with the name of supply chain “Leagile” including
“Lean strategy” and “Agile strategy”. We will research some management issues in supply
chain with question "What, and For what purposes and How to do?" and to show how each
stage represents its own goals. Finally, we give our recommendation for each issue at the end
of this report.

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I. INTRODUCTION
A Spanish multinational chain of clothes stores is called ZARA. Amancio Ortega created it
in the year 1975. Currently, this corporation employs 75,000 people globally and has 2264
outlets throughout 96 nations. In the market, H&M, Forever 21, and Boohoo should be
included as some of Zara's rivals. According to Ross (2015), Zara has access to more than
1725 suppliers in more than 50 nations, with a 60% manufacturing capacity. The Zara supply
chain is dedicated to "Leagile" in order to carry out such quick fulfillment. In particular,
Naylor et al. (1997) invented the term "Leagile" to refer to hybrids of the lean and agile
techniques. Zara has built a flexible supply chain with elements of "lean" manufacturing. It
works with the intention of responding quickly to the customers' shifting demands. Low
stock, high efficiency, and high responsiveness define the supply chain strategy. As a
consequence, the system is adaptable enough to handle abrupt fluctuations in demand, even
while the stock is kept slightly below the demand to adhere to the lean-approach.
II. STRATEGIC PRIORITIES
1. Order Winners
At the beginning of its founding, Zara found a significant gap in the market that very few
fashion brands could effectively address. In the mid-1980s, Amancio created a new fashion
trend called "instant fashion" with changes in design and technology to meet customers' needs
and fashion trends.
Zara chooses to prioritize cost and responsiveness. This strategy combines the following two
components:
 Short production and delivery times, allowing tight matching of supply with uncertain
demand. Zara's supply chain is capable of handling more than 450 million products
per year, and new models are launched twice a week. The stable production schedule
along with the fast delivery times of the Zara supply chain help it stay close to the
needs of its customers.
 The high-fashion or trendy product designs that Zara chooses to cater to the general
mass market across the industry, creating inexpensive look-alikes of new fashion
trends best for customers. Based on the latest styles and trends, they create new
designs and put them in store in 1 or 2 weeks. And while high-fashion brands focus

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on creating trends, Zara takes the shorter route: simulating designs and surveying
consumer demand. One of the business strategies of the business is that instead of
producing many products for the same model, Zara focuses on creating many designs
and minimizing quantity.
Thanks to that, even if this model runs out of stock quickly, there are still many more models
waiting to be released. Zara has a relentless focus on the customer, the creation of a new
product and the needs and wants of customers are inextricably linked.
Figure 01: Leading 10 European fast fashion brands based on units sold per year
worldwide in the financial year 2018/2019*(in 1,000s) (Source: Statista 2022)
According to this figure, Zara takes the lead when it comes to the highest number of products
sold in a year in comparison to other competitors. As a result, Zara's success is largely due
to the speed at which fashion trends are constantly changing. Customers buy from Zara very
quickly because they don't last long on the shelves. By giving customers a sense of urgency,
the majority of transactions are done instantaneously. Zara products are constantly changing,
if you come to Zara a week late, you will not be able to find the previous designs. This is the

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reason why Zara customers are urged to visit the store often. Since then, Zara beat other
fashion brands, becoming the most loved brand. With cheap products but following fashion
trends and famous brands, Zara has been successful since opening its first store. Currently,
Zara is under the management of Inditex group and has more than 2100 stores in 88 countries
worldwide (according to 2018 data). In 2017, Zara was ranked 24th for best global brand
(according to Interbrand's global brand consulting list). In Vietnam, in less than 4 months
since joining.
2. Order Qualifiers
Zara integrated supply chain management: To maximize efficiency, flexibility, and
synchronization across phases in order to reduce the "bullwhip effect" (more on that later)
and increase customer satisfaction. Creating significant earnings and shareholder value in the
short and long term at the same time. (Per Hillietofth and Olli-Pekka Hilmola, 2008).
Zara is shortening delivery times to stores to ensure low inventory and high responsiveness
to adapt and deliver products to stores according to the latest fashion trends and customer
feedback at a fast pace.
The above activities have helped Inditex-Zara significantly improve its competitiveness in
the industry and successfully combat the negative effects of short product life cycles, high
product variety, and uncertain demand and thus can closely match the supply of products to
the stores with the market demand. This contributes to a reduction in inventory backlogs,
avoiding loss or out of stock.

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Figure 02: H&M and Zara’s new arrivals (based on the number of products arriving
online each month at te retailers’ UK stores (source: EDITED)
According to the picture, you can see that Zara's product arrival time is much earlier than
H&M. Zara has a focus on the customer, the creation of a new product and the needs and
wants of customers are inextricably linked. In particular, Zara trains and empowers its
employees and store managers. These employees are extremely sensitive to the needs of
customers. They listen attentively and take notes of customers' opinions and ideas about the
product. They closely observe the style that customers are wearing, thereby assessing the
ability to convert into a unique style with the Zara brand. Zara's customer segment is mainly
young people. However, they want products that are reasonably priced but still trendy.
Therefore, Zara's strategy has targeted this element and produced trendy and low-priced
designs. That doesn't mean Zara uses substandard components. Zara's customer positioning
strategy is aimed mainly at women. In addition, men occupy a smaller segment in the strategy
and the remaining segment is for children's fashion.

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III. SUPPLY CHAIN DESIGN
1. Zara supply chain structure
Figure 03: Zara’s supply chain structure
This organizational structure states that Zara mostly sources its resources from Italy, Spain,
Portugal, and Greece. They only purchase textiles in 4 or 5 different color variations. The
manufacturer will get the textiles in 5 days. The possibility to meet specific consumer
demands arises using actual demand and the needs of existing customers, which boosts
customer loyalty. In 2015, according to Yang Daojian, Qi Ershi, and Li Yajiao, “The CUBE”
is the name of the distribution hub used by Zara. High-speed monorails run via underground
tunnels connecting the industries to "The CUBE". To get finished clothing, colored textiles,
and cut fabric to each factory, a monorail system is used. Then, 1000 new designs are
produced each month by Zara's design team. Every two weeks, Zara altered their collections.
The company designs new items and finishes them in its store in around four to five weeks.
(Mhugos, 2020).
Regarding the structure of Zara, the definitions of lean, agile, and decoupling at various
points in the Zara supply chain, and their implications:
Overview for lean stages:

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 ZARA disobeys the laws of the fashion supply chain by maintaining little stock and
routinely changing its collections through its "Just in time" or "Lean" business
strategy. Store managers place clothing orders twice a week at specific times, and
fresh clothing is delivered on time every time. ZARA has greater production control
than other merchants to make sure this occurs.
 As a consequence, new designs may be available in stores within fifteen days,
enabling ZARA to meet customer demand by manufacturing more of its best-selling
goods while ignoring its least-selling ones.
Overview for Agile stages:
 Zara was created from the beginning to be quick and flexible. Instead of exporting
to Asia, Zara continuously produces unfinished goods using a network of automated
factories in Spain and more than 300 small finishing plants in North Africa and
Turkey. Following the approval of a new design, unfinished goods are removed,
delivered to finishing facilities, and transformed into goods that can be sent in as
little as 24 hours to Europe and in 40 hours to Asian and North American markets.
 According to Dr. Warren Hausman of Stanford University, this creative method of
working enables companies to "raise profitability by as much as 28 percent" and
retailers like Zara to "avoid undesirable markdowns and lost sales." Consequently,
Zara has higher margins and lower inventory risk than the average store, making it
roughly four times more lucrative.
Decoupling stages:
In order to perform order-driven production as opposed to forecast-driven production, Zara
employs two decoupling points, the material decoupling point, and the information
decoupling point, to combine a speculation/postponement strategy with semi-finished
inventory (Gereffi & Frederick, 2010).

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Figure 04: Zara’s demand-driven approach
Source: MacCarthy and Jayarathne (2010)
 Material Decoupling Point: The point of decoupling is the assembler. In accordance
with the projection, the "commercial managers" are in responsible of
conceptualizing the types of apparel and textiles that will be ordered. The designs
are developed using data collected from customers in real time on the sales floor.
 Information Decoupling Point: The head office, factory, distribution center, and
retail outlets are the four supply chain participants that can all view customer
purchase behavior objectively since the information decoupling point is at the
furthest point upstream, or the headquarters. All supply chain partners are made
aware of changes in sales profiles so they may react promptly and efficiently to meet
demand without being further burdened by distorted end-customer demand. In this
thorough supply chain study, we will go into more depth on how Zara integrated and
merged the principles of lean and agile in their supply chain.
2. Vertical Integration
Vertical integration was employed by Zara to make sure that their supply chain operates well.
Since Zara has total control over the whole procedure, from design to shipment, they are able

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to gather important data at each step. Then, this input may be examined to identify
inefficiencies, point out areas of success, and generate accurate projections.
Figure 05: Information flow
The global clothing store gains more control through vertical integration, which also lowers
distribution costs, lowers risk, and improves consumer transparency. Since Zara can maintain
control and monitoring along the whole supply chain, it can also enhance cooperation and
communication between varied partners.

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3. Outsourcing
Figure 06: Zara vertical integration supply chain
Since it controls all operations from its headquarters in La Curona, Spain, Zara is virtually a
vertically integrated store, allowing it to satisfy consumer demand for the newest trends. In
its own shop in Spain, Zara manufactures around 50% of its merchandise, but all of its
stitching is done by other parties. With the use of buying offices in Barcelona and Hong Kong,
as well as personnel sourcing in the company's headquarters in Arteixo, Spain, Zara obtains
fabrics, threads, and other components from external suppliers. In order to give maximum
flexibility for the newest season's trend and save waste costs, around half of the cloth ordered
is not colored. Comditel, a wholly owned subsidiary of Inditex, works with a variety of
outside fabric and component vendors. Comditel is a company that dyes, patterns, and
finishes uncolored fabric.
Because of its vertical integration, Zara produces around 40% of the fabric it sells and
purchases the remaining dyes from a separate business. Since 60% of Zara's merchandise is
made in-house, the retailer can generate new styles with more variety, quantity, and regularity.